A year ago, I was still getting awesome credit card offers promising a year without interest payments and other incentives.
My credit score is over 600. Neither my score nor my financial situation has changed much in the past year. Yet I no longer get offers — except from American Express. And today I got a letter cancelling my Advanta card – I had not used it in a year — which had a limit of about $30,000.
A month ago, a Citi card cut my limit from $5000 to $300.
None of these changes affect me. I have other credit cards with a cumulative limit of about $100,000.
I went $20,000 into credit card debt in 1995 to write my first book (finally published by Prometheus Books in June 1999 A History of X). It took me until 2000 to get out of debt.
According to the 2008 book by Charles Morris, "The Trillion Dollar Meltdown: Easy Money, High Rollers, and the Great Credit Crash", we may have hit the Ponzi stage in the credit cycle:
Every since Paul Volcker put the inflation demons to flight in the early 1980s, credit has been the world’s greatest growth market. World GDP has increased spectacularly over the past twenty-five years, but nothing like the explosion of credit. The total of global financial assets was about the same as global GDP in the early 1980s. At the end of 2005, they were 3.7 times as high as global GDP.
…American workers…not only work longer hours than workers in any other advanced economy, but they also have the highest ouput per hour worked…but aren’t among the world’s best paid and coddled.
President-elect Barack Obama’s just-announced infrastructure spending program is a good start toward creating jobs and restarting economic growth. But it will take time. It also depends on the rest of the world’s willingness to keep absorbing U.S. debt.
The new administration might also explore privatized infrastructure construction, with lenders reimbursed from tolls and user fees. Those may be attractive investments for dollar-heavy sovereign wealth funds and would help repatriate the huge international overhang of dollars.
Because new stimulus programs will not have immediate effects, they should be paired with much-improved income relief for the large numbers of lower-income workers who are losing their jobs. The United States consciously accepts a higher level of economic instability than other industrialized countries but puts a disproportionate amount of the adjustment burdens on the backs of lower-income families.
The new administration should not try to reverse the rapid decline in consumer spending that started this fall. The grossly overleveraged consumer sector created by Wall Street’s lending binge is the main reason we’re in crisis. Trying to gin up high levels of consumer borrowing again is simply crazy. Households understand that they have to pare down debt and boost their savings. They are behaving far more sensibly than the Fed or the Treasury.
The sad reality is that we’re deep in the grip of a truly nasty recession that will probably run at least through 2009. Tiding over poor families is of crucial importance. Jollying along the banking sector, and assisting in the cover-up of their true losses, will ensure only years of stagnation.